The legalization of hemp as a result of the passage of the 2018 Farm Bill has turned the product into a good old commodity. With that comes futures and options trades so that farmers can better manage their crops and producers can control their raw costs.
The issue with hemp is that it isn't just another crop. While futures trades could happen this year, the product isn't standardized and the prices are all over the place.
The market is exploding as it seems hemp-derived cannabinoids (CBD) are showing up in just about every consumer-packaged good product available. A new report from Bank of America Merrill Lynch estimated the potential average annual spend on CBD in the U.S. at $1.9 billion today, but growing to $11.5 billion by 2032.
New Leaf Data Services has announced that its Hemp Benchmarks is now collecting, assessing and reporting on the wholesale price of biomass, dry flower, clones, seeds, crude hemp oil, refined hemp oil and CBD isolate. Hemp Benchmarks is soon going to be expanding its price assessments to cover additional end markets for hemp fiber and grain and will begin to report on international markets too.
"With the passage of the 2018 Farm Bill last year, the hemp market is poised for massive growth with unprecedented interest from farmers, processors and consumers, fueled in part by the extraordinary demand for CBD-based products. Industry participants will be seeking price transparency to analyze and navigate what we believe will be a dynamic and chaotic market as the projected supply and demand for hemp and hemp derived end-products comes into focus over the next few years." said Jonathan Rubin, CEO of NLDS.
The Bank of America report looked at the U.S., Europe and Canadian CBD markets and estimated that the combined three account for $6.6 billion in spending today and that could grow to $39.2 billion by 2032.
Rubin has been personally visiting farms and speaking with farmers to get the price information needed. These new assessments expand NLDS's portfolio of benchmarks, which include more than eighty weekly benchmarks covering the wholesale price of cannabis in legal U.S. and Canadian markets through its previously established Cannabis Benchmarks division.
"We expect volatile hemp and CBD markets until supply and demand reach an equilibrium," noted Rubin. "Price Reporting Agencies play a critical role in managing risk associated with volatile markets, enabling buyers and sellers to transact with confidence, support fundamental analysis by investors and equity analysts, and provide definitive benchmarks for commodity traders."
Helix TCS, Inc. (HLIX) acquired cannabis trading platform Amercanex International Exchange in February. Helix merged with seed to sale tracking company BioTrack THC last year already giving the company access to cannabis data. This acquisition provides Helix with an Electronic Communications Network (ECN) that can integrate blockchain technology to facilitate real-time transactions of wholesale cannabis product between licensed operators in regulated markets. They hope to use it for hemp as well.
Hemp farming has been approved in 42 states and each month these existing states continue to loosen the restrictions. In the past couple of months, Michigan farmers have been cleared for a 2019 harvest and Oklahoma has approved its farmers to expand into commercial hemp production. North Dakota lowered its hemp farming fees and lifted a ban on CBD production.
Texas recently passed a measure that would "regulate the commercial production of hemp and would establish the intent of the Legislature that the state have primary regulatory authority over the production of hemp and hemp products in Texas." In addition to allowing farmers to grow hemp, the measure would allow CBD to be added to foods, drugs and cosmetics, stating that cannabinoids from hemp are "not considered controlled substances or adulterants." Texas retailers would be protected from product seizures and any retailers selling CBD must be given "fair notice" of any CBD infractions before products could be taken.
Colorado has the most hemp acreage, followed by Kentucky and then Oregon. North Dakota is in fourth place followed by Minnesota according to a report by the Hemp Industry Association. These levels are just expected to continue to grow and as they do the financial instruments that are going to be created to work within the market will grow too. Traders will want to get in early to educate themselves on this market and make smart decisions.